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Tuesday, October 21, 2014

What We Talk About When We Talk About Due Process

In the most recent installment of delinquent-tax-sale gone wrong, SCOV makes sure to put the “due” in “due process.” The question in this case is the classic procedural conundrum of how much process is due. The Court’s answer: quite a bit. SCOV held that when a notice of tax sale is sent with return-receipt requested, and is returned to sender unclaimed, due process requires a little extra push in order to be sufficient. Also, that process is due before the tax sale itself, and not anytime before the ultimate transfer of title. Result for the unfortunate buyers in this case: instead of getting a bargain-basement deal, plaintiffs bought themselves a lawsuit.

Deprivation by the State of a person’s life, liberty, or property requires due process, which even property owners who don’t pay taxes are entitled to. The reason? Evade the taxman long enough, and a town can sell your property through an auction to satisfy any delinquencies, a.k.a. "tax sale." In a case of great significance to these sales, SCOV set out to answer, how much process is the defendant due? And, when is it due?

The story of how the defendant here beat the taxman (sort of) begins in 2007 when he stopped paying property taxes. He didn’t pay any taxes for the 2007-2008 and 2008-2009 tax years for his land in the Town of Milton. The Town sent him three notices, two in 2009 and one in 2010, saying he needed to pay up or they were going to sell his property at a tax sale. In March of 2010, the Town tried, tried, and tried again to notify him of an upcoming sale. The first three notices did not contain information on the upcoming tax sale, or even say there was an upcoming tax sale (although titled “Tax Sale Notice”). They merely gave notice of the amount of tax delinquency due, plus costs for postage, publication, warrant, recording, attorney’s fees, and interest calculated through April 6, 2010. What’s the significance of that date? Well, that was the date of the upcoming tax sale, but again, these notices didn’t specifically say that. All three were sent by first-class mail, and the defendant of course denied receiving them. None were returned to the Town.

Next, the Town mailed the defendant a “Notice of Tax Sale.” Why the slight difference in the title? Well, that’s not really explained, but this notice did provide some more information. For instance, it specifically stated the tax sale would be on April 6, and also provided the time and location. And this time, the Town sent it by registered mail with the return-receipt requested. Due process threshold met? Not exactly, as the Court goes on to explain, because the mail was returned unclaimed on March 24 after two attempts. With now only two weeks until the sale, the Town made some last-ditch efforts to satisfy due process: It recorded notice of the sale in the town’s records, posted notice in Milton Town Offices, and advertised the sale in the Milton Independent on three occasions. The local newspaper’s legal classified page, or the section everyone uses as stuffing for packages.

After defendant’s one-year period for redemption was over, plaintiff-buyers filed a complaint for ejectment and asked for possession. The defendant admitted to not paying taxes, but said that shouldn’t matter because of lack of proper notice. He counterclaimed against the buyers, and brought the Town along through a third-party complaint. After summary judgment motions by the both the plaintiffs and the Town, the trial court held in favor of defendant, ruling that due process was not satisfied.

Up now to SCOV on appeal, the key question is whether defendant got his “due”? SCOV says no, so let’s figure out why. First, SCOV acknowledges that the words due process are indeed “cryptic,” but basically require that the Government provide “notice and opportunity for [a] hearing appropriate to the nature of the case” before any deprivation of “life, liberty, or property” (see about several hundreds of SCOTUS cases that have said such). This test is not rigid—because that would be too convenient for us—but instead is “flexible and calls for such procedural protections as the particular situation demands.” This means that, under the specific circumstances, notice must be “reasonably calculated,” two words every first-year law student should write somewhere on their civil procedure exam.

Lucky for SCOV, and unlucky for the plaintiffs and the Town, there is a SCOTUS case on point. In Jones v. Flowers the State of Florida had sent notice to the delinquent taxpayer’s house that was returned unclaimed. Different from the facts here, the defendant did not live there but his ex-wife did. SCOTUS acknowledged that, yes, the typical “reasonably calculated” standard applied. But, having a return-receipt-requested mailing returned unclaimed heightened that standard for the State. “[O]nce the government learns that its attempt at notice has failed, it must take the kind of reasonable steps that someone ‘desirous of actually informing’ the property owner would take.” Who exactly is someone “desirous of actually informing” the property owner? I'm not sure, but in this context I guess it would mean someone who really does not want the tax sale thrown out on appeal. Plaintiffs attempt to distinguish Flowers because, here, the defendant still resided at the property and defendant had received notices of attempted deliveries. SCOV, however, thinks that the defendant’s attempt at the ostrich defense is not important (“Whether taxpayer disregarded the notices is not the issue”). Instead, the Town’s notice of unclaimed mail should have put them on notice that additional efforts were necessary.

Interestingly, SCOV moves on to the next issue presented without any discussion whether the posting in the local newspaper on in Town office’s were sufficient under the circumstances. I guess it goes without saying they are not. But the defendant hasn’t won yet. The buyers and the Town next argue that notice of the defendant’s right to redeem within one year after the tax sale is enough to make up for prior due-process deficiencies. Basically, no harm no foul.

If the defendant received adequate notice before the transfer of title, but after the tax sale, there is still due process before the actual deprivation of property. This seems like a pretty plausible argument at first blush. After all, even if unaware of the tax sale, the defendant still has an entire year to redeem and ultimately keep the property. To support this argument, plaintiffs cite a prior SCOV case that held that a town may keep proceeds of a tax sale pending redemption because there is no transfer of property until the end of the one-year redemption period. Plus, to throw in some equity-esqe language, plaintiffs cited an Arkansas Court of Appeals case that held that “nobody’s position changes with respect to the property until the remaining redemption period expires.”

SCOV looks at this language from the Arkansas case and says, good point: a deprivation would require some detrimental change in position. Here, many aspects of the sale pointed in the plaintiffs' favor because they arose before the sale: interest began accruing before the sale, and the tax collector’s authority to levy fees—including attorney’s fees—began to run when the warrant for delinquent taxes was filed, before the sale. SCOV, however, finds one important aspect that does change. Before the sale, interest accrues at one percent on just the delinquent amount itself. But after the sale, this one percent accrues on the entire sum, which includes the delinquency plus other costs such as collector and attorney’s fess. Thus, we have a deprivation of property at the time of sale, and thus due process was required before the sale. Plaintiffs' arguments fail, the trial court is affirmed, and the delinquent taxpayer survives with his property title still in hand.

SCOV provides a helpful endnote on one lingering question: how many hoops should the Town have jumped through to satisfy due process in this case? SCOV gives no bright line of course, but suggests “re-sending notice by regular mail, posting notice on the taxpayer’s front door, or addressing otherwise undeliverable mail to ‘occupant.’” Or, just old-fashioned service by sheriff. These suggestions are confined to the facts of this particular case, however, as SCOV notes that the Town’s burden to take these additional steps was “slight” given it still had two weeks after the mail was returned unclaimed. Still, town and municipal attorneys will, in all likelihood, follow these suggestions in an abundance of caution.

In a final nod to property-rights enthusiasts, SCOV at the end the decision emphasized, “when we are talking about divesting an individual of property, and in some cases home and hearth, the form and adequacy of the notice is not a trivial concern.”